What is tax washing?

Just like the now-prolific buzzword it derives from – greenwashing – tax washing is where a company’s statements, disclosures or some form of communication when it comes to tax doesn’t provide a true picture in a way that can be misleading.  

In terms of tax disclosure, tax washing can sometimes be seen when businesses choose to report their total tax contribution at a country level, while obscuring the amount of corporation tax that is paid. Just look at Amazon, with their highly selective total tax contribution reporting in countries such as the UK and Canada, for example. 

The misrepresentation of total tax accruals (or effective tax rates) as cash tax paid is another concerning tax washing behaviour businesses might engage in.  

Unsurprisingly, tax washing should raise a red flag for consumers, clients, employees or investors in a business, as it is often indicative of other negative behaviours. The Fair Tax Foundation recently published a report for investors highlighting a variety of red and green flags they should look out for at their investee companies in five key areas of conduct.  

Key Performance Indicators of responsible corporate tax conduct – and their green and red flags encourages investors to look at their businesses’ tax activities in their annual financial statements, their responsible tax commitments, their country-by-country reporting, their disclosure of uncertain tax positions and their corporate cash taxes paid over a five-year period.   

Companies should embrace disclosure practices such as public Country-by-Country Reporting of corporation tax and other taxes – as our Fair Tax Mark organisations do – as a way to nip tax washing in the bud and ensure it’s never as prolific a term as greenwashing.